Mexico’s oil reforms may open new markets for local businesses

By Mella McEwen | mmcewen@mrt.com

Published 7:15 pm, Saturday, August 16, 2014

More than seven decades after Mexico nationalized its oil and gas industry, reforms are allowing private and foreign firms to sign production and profit-sharing deals in the oil, gas and electricity industries.

Oil and gas producers are largely focused stateside, as illustrated by Pioneer Natural Resources’ comment that “our focus at this time is on developing our acreage across the Permian Basin and Eagle Ford, where we are enjoying favorable economics and efficiencies from our operations.”

Steve Pruett, president and chief executive officer of Elevation Resources, said he sees Mexico’s actions creating three types of ventures.

One is a joint venture in which companies partner with the national oil company in a non-operator capacity, primarily providing external capital. Second is a partnership developing undeveloped resources and the third is partnershis improving production in marginal producing fields, providing capital and expertise and being assigned interest in portions of those fields.

Speaking from experience working in Mexico and consulting with companies there, Pruett said it will take some time to finalize the legislation, describe the opportunities and set up the bidding process. He said it will take foreign companies with deep pockets, deep wells of patience and long investment horizons to take advantage of the reforms.

Still, he said, “I’m impressed with the movement of the government.”

In the meantime, there is no question service companies will benefit from the reforms, he said.

Local service companies have been watching these reforms, with some hoping it will open new markets for their companies.

“I believe these positive energy developments south of the border could have a positive impact on Permian Basin equipment manufacturers and suppliers,” said Ben Shepperd, president of the Permian Basin Petroleum Association,.

Companies like Hy-Bon Engineering see potential south of the border.

“I’m very excited that Mexico is opening its oil and gas industry to foreign investment,” said Larry Richards, Hy-Bon president and chief executive officer.

His company has sold equipment to Mexico on vent gas capture projects, he said. “We actually had a emission survey team in Mexico just last week, but this new development could increase our opportunities dramatically,” he said.

Mexico’s state oil company, Petroleos Mexicanos or Pemex, has some great people, but the bureaucracy and layers of approval processes and red tape make it very difficult and very time consuming to execute projects successfully, Richards said.

“Mexico vents and flares a huge percentage of the natural gas produced with their oil. With this change in policy, it opens a great opportunity for new players to bring in new technology — like our VRUs — and capitalize on that lost revenue,” Richards said.

Mexico is launching “Round Zero,” the first areas on land and offshore to be assigned under the reforms. Pemex will retain rights to exploit 83 percent of proven and probable reserves and is expected to form alliances with private firms in some of those fields.

“Round One” will include bidding scheduled to start in February and will let private firms vie for rights to explore the 79 percent of remaining fields where reserves are suspected.